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Impact of fiscal measures in response to the COVID-19 pandemic on small-open economies: lessons from Slovenia

Arigoni, Filippo and Breznikar, Miha and Lenarčič, Črt and Maletič, Matjaž (2020): Impact of fiscal measures in response to the COVID-19 pandemic on small-open economies: lessons from Slovenia.

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Abstract

We estimate the impact of the fiscal expansion due to the COVID-19 outbreak on the Slovene economy using two models. First, we simulate fiscal shocks in 3-scenarios in a calibrated large-scale DSGE model. Second, we employ a small-scale VAR model to check the robustness of the theoretical results. The findings suggest a significant response of GDP, private consumption, and imports to fiscal shocks. In particular, the outcomes highlight that compared to other unanticipated fiscal developments a government consumption shock explains the lion's share of domestic fluctuations. The main transmission channel is high complementarity between private and government consumption.

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